FARGO,
N.D. — The furious pace of energy exploration in North Dakota is
creating a crisis for farmers whose grain shipments have been held up by
a vast new movement of oil by rail, leading to millions of dollars in
agricultural losses and slower production for breakfast cereal giants
like General Mills.
The
backlog is only going to get worse, farmers said, as they prepared this
week for what is expected to be a record crop of wheat and soybeans.
“If
we can’t get this stuff out soon, a lot of it is simply going to go on
the ground and rot,” said Bill Hejl, who grows soybeans, wheat and sugar
beets in the town of Casselton, about 20 miles west of here.
Although
the energy boom in North Dakota has led to a 2.8% unemployment
rate, the lowest in the nation, the downside has been harder times for
farmers who have long been mainstays of the state’s economy. Agriculture
was North Dakota’s No. 1 industry for decades, representing a quarter
of its economic base, but recent statistics show that oil and gas have
become the biggest contributors to the state’s gross domestic product.
Railroads
have long been the backbone of North Dakota’s transportation system and
the most dependable way for farmers to move crops — to ports in
Portland, Ore., Seattle and Vancouver, from which the bulk of the grain
is shipped across the Pacific to Asia; and to East Coast ports like
Albany, from which it is shipped to Europe.
But
reports the railroads filed with the federal government show that for
the week that ended August 22, the Burlington Northern Santa Fe Railway —
North Dakota’s largest railroad, owned by the billionaire Warren E.
Buffett — had a backlog of 1,336 rail cars waiting to ship grain and
other products. Another railroad, Canadian Pacific, had a backlog of
nearly 1,000 cars.
For
farmers, the delays often mean canceled orders from food giants that
cannot wait weeks or months for the grain they need to make cereal,
bread and an array of other products. “They need to get this problem
fixed,” Mr. Hejl said. “I’m losing money, and my customers are turning
to other sources as a result. I don’t know how much longer we can
survive like this.”
This month, federal Agriculture Department officials said they were
particularly concerned that Canadian Pacific would not be able to
fulfill nearly 30,000 requests from farmers and others for rail cars
before October. As a result, North Dakota’s congressional delegation and
lawmakers in Minnesota and South Dakota have called on the Surface
Transportation Board, which oversees the nation’s railroads, to step up
pressure on the companies.
“This rail backlog is a national problem,” Senator Heidi Heitkamp,
Democrat of North Dakota, said in an interview. “The inability of
farmers to get these grains to market is not only a problem for
agriculture, but for companies that produce cereals, breads and other
goods.”
A
recent study conducted by North Dakota State University at Ms.
Heitkamp’s request found that rail congestion could cost farmers in the
state more than $160 million because a local oversupply of grain has
lowered prices.
The
study also found that farmers would lose $67 million in revenue from
wheat, corn and soybeans from January to mid-April. Around $95 million
more in losses are expected if farmers are unable to move their
remaining inventory of crops.
The
study was done before the current harvest, which is forecast at a
record 273 million bushels of wheat, up from 235 million bushels in
2013. This year’s soybean harvest is also expected to be a record, and
corn will be a near-record.
Food
companies say they are feeling the effects of the delayed shipments.
General Mills, the Minnesota-based maker of Cheerios, told investors in
March that it had lost 62 days of production — as much as 4% of
its output — in the quarter that ended in February because of winter
logistics problems, including rail-car congestion. In its earnings
report this month, Cargill, another Minnesota-based food giant, reported
a drop in net earnings that it attributed in part to “higher costs
related to rail-car shortages.”
Farmers
and agriculture groups say rail operators are clearly favoring the more
lucrative transport of oil. Rail shipments of crude oil in North Dakota
have surged since 2008, and the state now produces about a million
barrels a day. About 60% of that oil travels by train from the
Bakken oil fields in the western part of the state to faraway oil
refiners. There are few pipelines to ship it.
“Oil
seems to be pushing us off the trains,” said Bob Sinner, a farmer and
the brother of a Democratic congressional candidate, George Sinner, who
is running against the state’s lone House member, Representative Kevin
Cramer, a Republican. George Sinner has called on the Surface
Transportation Board to use its emergency powers to address the rail-car
shortage — the board could allow shippers to move their products with
the help of a different carrier, for example. But Dennis Watson, a
spokesman for the board, said it rarely invoked its emergency powers and
preferred to work with rail carriers to solve problems.
B.N.S.F. and Canadian Pacific maintain that their oil shipments have not replaced shipments of crops.
“Of
course, the big difference in what we are shipping these days is oil,”
said Matthew K. Rose, the executive chairman of B.N.S.F. “But we aren’t
favoring one type of product over another.”
Nonetheless,
B.N.S.F. is investing about $400 million in North Dakota, in part to
build additional tracks, hire new staff members and add rail cars. “We
understand the frustration of our customers,” Mr. Rose said. “We’re
making this investment in our infrastructure to make sure that we get
things back to normal.”
Doug
Goehring, the state’s agriculture commissioner, is not optimistic so
far. “I know that B.N.S.F. especially is trying, but I just don’t see
that it’s going to be any better this year,” he said. “We’re expecting
record crop yields, and I expect we will see more of the same with
shipments lagging.”
Canadian
Pacific officials said they were working with farmers to clear the
backlog. But in a letter to Ms. Heitkamp, E. Hunter Harrison, the
railroad’s chief executive, argued that many of the delays stemmed from
what he called phantom requests — farmers’ ordering more rail cars than
they need to ship products. As a result, Mr. Harrison said, cars are not
available for farmers who have more immediate shipping needs.
The
letter prompted an angry response from Ms. Heitkamp and state officials
like Mr. Goehring.
“With C.P., it’s everybody’s fault but theirs,” Mr.
Goehring said.
Both
railroads said some of the blame for the slowed traffic lay with one of
the coldest winters in years and with an increase in shipments of all
types of products as a result of an improving economy.
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